Hanfeng Evergreen shareholders approve CEO's takeover

TORONTO • As expected, the shareholders of Hanfeng Evergreen Inc. voted in favour of a $135-million buyout by the company’s chief executive on Friday.

Not that they had much choice.

Hanfeng has run into a severe crisis in China, as its largest customer has refused to buy its fertilizer products unless the Toronto-based company goes private. The customer, a state-owned entity called Beidahuang Agriculture Company Ltd., is also interested in buying a stake in Hanfeng — but only after the firm is acquired by CEO Xinduo Yu.

[Mr. Yu] has done his best to destroy the shareholders’ value over the last two to three year

The move has infuriated investors, who believe that Beidahuang and Mr. Yu are shoving them out of the picture at a bargain-basement price. Mr. Yu’s offer is worth $2.25 a share, far below Hanfeng’s peak of nearly $16 in 2007.

“[Mr. Yu] has done his best to destroy the shareholders’ value over the last two to three years,” said Andrei Fedorov, an aggrieved Hanfeng investor.

Shareholders approved the deal by a margin of 72.5%, the company said.

At Friday’s annual meeting in Toronto, Hanfeng took the extraordinary step of not allowing media inside. When the Financial Post tried to question chairman Louden Owen afterwards, he declined comment.

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While the transaction has received shareholder approval, it is far from a done deal. Hanfeng revealed on Thursday that Mr. Yu’s lender has reduced the amount of money it is willing to commit, apparently because of product quality problems at Hanfeng’s Indonesian operation.

The offer has been extended to April 30 to give Mr. Yu time to secure the funds. Meanwhile, the stock is trading about 25% below the bid, as investors fear it could fall apart.

“Quantifying the risk of the CEO securing the required financing is speculative at best,” Canaccord Genuity analyst Keith Carpenter wrote in a note.

Hanfeng used to sell its fertilizer products to a wide variety of Asian customers. But in the past couple of years, it has focused almost exclusively on Beidahuang, which accounted for more than 70% of the company’s sales in 2012.

The downside of this partnership became apparent late last year, when Beidahuang wasn’t buying. Sales in the quarter ended Dec. 31 were just $8.5-million, compared to $45.8-million in the same quarter a year ago. Hanfeng also recorded a massive $118.5-million writedown on its flagship Chinese operation. That writedown was worth more than the company’s entire market value today, which is roughly $106-million.

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